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HMRC internal manual

Stamp Taxes on Shares Manual

Derivatives: introduction to futures and forwards: secondary trading of a futures contract

Stamp Duty

Where the rights under an equity futures contract in respect of underlying securities (i.e. stocks and shares within the meaning if ‘stock or marketable securites’ per section 122 Stamp Act 1891 are transferred and purchased before expiry no Stamp Duty charge will normally arise.

This is because no instrument of transfer will usually be required to be executed where the rights to a futures contract (rather than a transfer of the underlying stocks and shares), are acquired by the purchaser.

Stamp Duty Reserve Tax (SDRT)

Whether or not a 0.5% SDRT charge under section 87 (1) & (6) Finance Act 1986 arises whenever rights to an equity futures contract in respect of underlying UK registered securities are agreed to be transferred for consideration in money or money’s worth is dependent on the terms of the contract as follows:

The terms of an equity futures contract provide only for cash settlement:
  • not subject to a SDRT charge as no ‘rights to acquire’ securities as defined in s99 (c) FA86 have been transferred.
Under the terms of the contract, the issuer of the futures contract has the discretion upon settlement to deliver (or acquire) the underlying securities, or arrange for a cash settlement:
  • not subject to a SDRT acharge s no ‘chargeable security’ as defined in s99 FA86 has been transferred.
Under the terms of the contract, the holder of the futures contract has the discretion upon settlement, to acquire the underlying securities, or arrange for a cash settlement:
  • subject to a 0.5% SDRT charge if the transfer of rights to acquire is to an underlying security which is regarded as a ‘chargeable security’ within the meaning of s99 (3)(c) FA86.

Note: The rights to an equity forwards contract cannot be transferred or secondary traded on an investment exchange.

See STSM999999 (Glossary) for the meaning of ‘equity’.

See STSM117010 for the meaning of a Futures contract.

See STSM117030 for the meaning of a Forwards contract.